Town Square

Brillís Pill, Distilled

Original post made
by Tom Cushing, Danville,
on Mar 15, 2013

I've admired Steven Brill since our much shaggier days; his early, spot-on exposee of the Teamsters was an act of journalistic courage. He has recently faced an even more formidable foe in the American health care system, of which he has written a 25,000 word diagnosis in Time magazine ("Bitter Pill", March 4 issue). Instead of the current political warfare over Who pays our medical bills, he asserts, we should instead be asking "WHY are these bills So Dam' High?"

Brill sets out to unmask a system that accounts for fully 20% of GDP, twice what other First World countries pay per capita, with no better results to show for the duplicate investment. If we could somehow wean the estimated $800B waste from a $2.7T annual invoice, we'd have addressed many of our most vexing public spending problems. But it's a seller's market run amok, with wildly-inflated prices opaque to its customers, utterly unhinged from its costs across the entire supply chain, and protected by lobbying investments five-times those of the well-greased defense and energy industries.

Ironically, its best-run sector is Medicare. That government program is cost-based, efficient, well-policed  and in danger of being dismantled because of its sheer size and growth. One alternative, popular among House partisans would substitute a deeply flawed, regressive voucher system, with all of the defects present in the private insurance system  and they are many.

Rather than paint the several thousand health insurers as the villains of this drama, Brill sees them as the hospitals' whipping boys, with only limited bargaining power. Each negotiates a significant individual discount on covered patients' bills  but a discount from what? Therein lies the key to understanding this debacle.

The increasingly powerful hospitals use a mysterious system called The Chargemaster to decide the rate at which each element of service is invoiced. The mark-ups are shamelessly outrageous. Typical examples include a lab test for which Medicare pays a cost-plus $14, billed at $198; $7 for a single prep pad, when a box of 200 retails for $1.91; and a cancer drug that costs $300 to make, then billed to the hospital at $3,000 and thence to the patient at a whopping $13,702! Sadly, those are not isolated cases, and they make the Pentagon's $100 toilet seats look like a bargain.

The explanations Brill says he was offered were three: nobody pays The Chargemaster rates, they are necessary to offset discounts given to insurers, and they underwrite charity care. None holds up to scrutiny. First, the near-poor/uninsured Do pay retail, often ruinously, as they have no buffer. Second, the insurance discounts are 30-50% on services typically marked-up well-over 100%. And charity care  at Chargemaster rates -- accounts for less than 5% of hospital revenue, according to the industry's own lobby. Their actual cost?  a pitiful fraction of that pittance.

The system also feeds itself. With their untaxed profit margins of 10-30%, non-profit hospitals can't pay dividends, so they expand facilities, buy the latest Chargemaster-able machinery and bestow handsome administrative salaries. Too often, those new machines provide only marginally better care, but their tests can be billed at multiples of the old tests  and no doc will ever be grilled by a malpractice attorney for ordering the newest new thing. Everybody has to have one, too, of course -- and we all pay.

Policy wonks used to think that part of the solution was to shorten hospital stays. The Chargemaster was more than equal to that task, however  shifting the highest of those outrageous mark-ups to the out-patient services departments.

So, what's to be done? Brill does not expect much help from ObamaCare  indeed, he believes that premiums will rise dramatically, at least in the short run. That reform simply does not address these problems as would, say, a single payor system (Medicare, for all). Nor is he very optimistic otherwise, given the complexities of reform  and the deep entrenchment of the interests. He offers a number of lawyerly possibilities, like outlawing The Chargemaster, eliminating hospital mergers, taxing all hospital profits and limiting administrative salaries.

As he puts it, "we've enriched the labs, drug companies, medical device makers, hospital administrators and purveyors of CT scans, MRIs, canes and wheelchairs. Meanwhile, we've squeezed the doctors [and] everyone outside the system who gets stuck with the bills. We've created a secure, prosperous island in an economy that is suffering under the weight of the riches those on the island extract."

"And we've allowed those on the island and their lobbyists and allies to control the debate, diverting us from what Gerard Anderson, a health care economist at Johns Hopkins, says is the obvious and only issue: 'All the prices are too damn high.'"

Synopsis: the health care system is broken, and there's no relief in sight.

Posted by Jack Sparrow
a resident of Diablo
on Mar 20, 2013 at 2:43 pm

My goodness---admitting Obamakill will make premiums rise?? This will....and not for a "temporary" time. Will denial of service (let them die) be race related so as to kill off Caucasians faster? Teddy Kennedy's 1965 immigration reform not destroying the USA fast enough? Probably. We are the brave new world.....thanks socialists.

Jack: I don't know Brill's politics, so I'm not sure I'd call his prediction about future premiums an 'admission.' I do think he's right that the new approach has not been designed to address the system flaws he describes in this article.

The article, though, is about Those flaws. Do you have any ideas about That subject, lest folks are left to suspect that the parrot and the red head are correct (matey)?

Posted by C. R. Mudgeon
a resident of Danville
on Mar 26, 2013 at 2:42 pm

In the end, the fundamental problem is essentially one of cost-shifting, which serves to blunt or even eliminate any beneficial effects of competition.

Brill somewhat acknowledges this, I think, in saying that the insurance companies are not really the main problem here. Indeed, there is a reasonably competitive and some-what efficient "marketplace" for health insurance. Companies are very able to shop around for better rates for their employee health plans, and even individuals have some degree of ability to shop for different levels of coverage, from different vendors.

But this all breaks down at the service-provider level. No one really shops for better hospital rates, nor ER rates, nor regular doctor rates. And while the insurance companies DO have some leverage with hospitals and other service providers, it is limited by geography. The inurance companies want to have broad inclusion of service providers so that the shoppers of insurance plans will see that their local providers are covered by the plan. So this takes away the main insurance company leverage - which is dropping a provider from coverage. It's relatively easy to drop a doctor, or even a local medical group. But not easy at all for an insurance company to just drop a hospital (at least not without ticking off lots of their plan participants.

I'm very leery of government-run single-payer proposals. That said, an argument might be made that a single-payer system that only extends to the hospitalization part of an insurance plan, and perhaps just for "catestrophic" coverage, might make sense. You could still have the actual doctors bills and specialists bills be borne by regular insurance, since there are enough choices so that the insurance companies could actually drop doctors or surgeons who charged too much. This sort of "hybrid" private/public health insurance might well get rid of the most un-competitive situations (by putting them under regulation), while letting competitive forces work where they have a chance of working. Just my $0.02.

I agree that Obama-care doesn't address this issue. However, one might argue that Obama-care was actually designed/intended to raise health insurance rates, so as to drive people toward a single-payer system over time. That's not part of the talking points, of course. But it seems like that's what the impact will be....

CRM: Yup -- I agree with your characterization of the market failure. It's a little like a public-type utility, in that everybody needs it, and yet you cannot shop for it -- like a utility, except that it is completely unregulated as to price. Imagine what PG&E could do with that kind of freedom!

I've had both hips replaced, grace of my misspent youth. Surgeon who did hip 1 had moved to Austin; I was so happy with the result that I tried to comparison-shop to get hip 2 done there. Couldn't do it, even with his help. His former partner did hip 2 here, and I'm as happy with that job, but I learned that you cannot be an informed consumer -- even on non-emergency service that you can schedule ahead.

I also like your half/half idea, except there may be too many moving parts at that point. I doubt ObamaCare was passed for the purpose of eventually reaching single payor -- but that said, I'm guessing that's where we're headed. Maybe Hillary will get us there, after all? (I know you'll love That idea.)